Stock Analysis on Net
Stock Analysis on Net

Delta Air Lines Inc. (NYSE:DAL)

This company has been moved to the archive! The financial data has not been updated since July 13, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Delta Air Lines Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.66%
01 FCFF0 25
1 FCFF1 26 = 25 × (1 + 2.39%) 24
2 FCFF2 27 = 26 × (1 + 3.94%) 23
3 FCFF3 28 = 27 × (1 + 5.49%) 22
4 FCFF4 30 = 28 × (1 + 7.05%) 22
5 FCFF5 33 = 30 × (1 + 8.60%) 22
5 Terminal value (TV5) 62,356 = 33 × (1 + 8.60%) ÷ (8.66% – 8.60%) 41,171
Intrinsic value of Delta Air Lines Inc. capital 41,283
Less: Debt and finance leases (fair value) 28,736
Intrinsic value of Delta Air Lines Inc. common stock 12,547
 
Intrinsic value of Delta Air Lines Inc. common stock (per share) $19.57
Current share price $29.70

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Delta Air Lines Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 19,044 0.40 16.04%
Debt and finance leases (fair value) 28,736 0.60 3.77% = 5.12% × (1 – 26.42%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 641,197,918 × $29.70
= $19,043,578,164.60

   Debt and finance leases (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (29.80% + 20.50% + 23.10% + 24.10% + 34.60%) ÷ 5
= 26.42%

WACC = 8.66%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Delta Air Lines Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense, net 1,279 929 301 311 396
Net income (loss) 280 (12,385) 4,767 3,935 3,577
 
Effective income tax rate (EITR)1 29.80% 20.50% 23.10% 24.10% 34.60%
 
Interest expense, net, after tax2 898 739 231 236 259
Add: Dividends declared — 257 981 909 731
Interest expense (after tax) and dividends 898 996 1,212 1,145 990
 
EBIT(1 – EITR)3 1,178 (11,646) 4,998 4,171 3,836
 
Current maturities of debt and finance leases 1,782 1,732 2,287 1,518 2,242
Debt and finance leases, excluding current maturities 25,138 27,425 8,873 8,253 6,592
Stockholders’ equity 3,887 1,534 15,358 13,687 13,910
Total capital 30,807 30,691 26,518 23,458 22,744
Financial Ratios
Retention rate (RR)4 0.24 — 0.76 0.73 0.74
Return on invested capital (ROIC)5 3.82% -37.95% 18.85% 17.78% 16.87%
Averages
RR 0.62
ROIC 3.87%
 
FCFF growth rate (g)6 2.39%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 1,279 × (1 – 29.80%)
= 898

3 EBIT(1 – EITR) = Net income (loss) + Interest expense, net, after tax
= 280 + 898
= 1,178

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,178 – 898] ÷ 1,178
= 0.24

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,178 ÷ 30,807
= 3.82%

6 g = RR × ROIC
= 0.62 × 3.87%
= 2.39%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (47,780 × 8.66% – 25) ÷ (47,780 + 25)
= 8.60%

where:

Total capital, fair value0 = current fair value of Delta Air Lines Inc. debt and equity (US$ in millions)
FCFF0 = the last year Delta Air Lines Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Delta Air Lines Inc. capital

FCFF growth rate (g) forecast

Delta Air Lines Inc., H-model

Microsoft Excel
Year Value gt
1 g1 2.39%
2 g2 3.94%
3 g3 5.49%
4 g4 7.05%
5 and thereafter g5 8.60%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 2.39% + (8.60% – 2.39%) × (2 – 1) ÷ (5 – 1)
= 3.94%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 2.39% + (8.60% – 2.39%) × (3 – 1) ÷ (5 – 1)
= 5.49%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 2.39% + (8.60% – 2.39%) × (4 – 1) ÷ (5 – 1)
= 7.05%